We assess the 2001 income tax reform to determine its welfare impact across families with different characteristics. A household labor supply model is estimated to account for variable behavioral responses by family type. We find that while higher-education families received a larger share of the welfare gain generated from lower marginal tax rates, it was the lower-education families that provided the bulk of the additional labor supply motivated by the tax reform. We also find differing welfare gains across families with different numbers of children, highlighting the importance of allowing responses to vary across family characteristics when assessing the welfare impact of a policy change.
JEL classification: J22, H31, H23, I31
Key words: family labor supply, tax reform, family welfare, family utility
The views expressed here are the authors' and not necessarily those of the Federal Reserve Bank of Atlanta or the Federal Reserve System. Any remaining errors are the authors' responsibility.
Please address questions regarding content to Julie L. Hotchkiss, Research Economist and Policy Adviser, Research Department, Federal Reserve Bank of Atlanta, 1000 Peachtree Street, N.E., Atlanta, GA 30309-4470, 404-498-8198, 404 498-8058 (fax), , or Robert E. Moore, Office of the Dean, Andrew Young School of Policy Studies, Georgia State University, P.O. Box 3992, Atlanta, GA 30302-3992, 404-413-0056, email@example.com.
For further information, contact the Public Affairs Department, Federal Reserve Bank of Atlanta, 1000 Peachtree Street, N.E., Atlanta, Georgia 30309-4470, 404-498-8020.